Haircut

30 plus years ago, Warren Buffett was quoted as saying ” Never ask a barber if you need a haircut”. I imagine if we modernized the saying to bring it into this millennium it would go something like ” Never ask a Tik Tok realtor if it is a good time to buy a house”.

As we all know by now, the BOC and Uncle Tiff decided to drop the overnight rate by 25 bps this morning. The reason I say we should all know is that the BOC announcements have taken on some sort of fan base as of late. They seem to be more sought after than the newest Iphone model these days. I never really understand why people pay such close attention – other than bond traders who react and re price things instantly. Oh well, I will add it to the list of things I don’t understand like physics, women, and why they sell hotdogs in 12 packs, and hot dog buns in 8 packs.

With the rate cut of June, and now the rate cut of July, I have been absolutely floored with the amount of bullshit info I see circulating. There is a lot of misinformation circulating from the pulpit of ignorance these days.

Rates are down!!! I hear this one a lot. Well, I call bullshit on that. Yes, some rates are down, but to say ” rates are down” is nothing more than a lie. For example, even though the current overnight rate is 50 bps lower than it was on Jan 01, 2024, the 5 year government bond yield is still higher by 8 or so bps than the same date. So how exactly are rates down? Yes, the overnight rate is lower, the 1 year rate is lower, but to make a sweeping statements that ” rates are down ” just proves how little some people know. Let’s also take a moment to reflect on how crazy it is that the BOC has turned dovish, dropped rates by 50 bps in a little over 6 weeks, and the 5 year bond yield is still higher than it was 7 months ago. This tells me that the bond market sees some sticky inflation in our future. And not sticky like sweet caramel stuck to your fingers after eating a treat. No, no, I mean sticky like gum in your hair.

Lie number 2 that is quite honestly my pet peeve is inflation. If I hear one more person back out the housing inflation from the CPI, and claim that if ” you remove housing inflation, then CPI is actually negative”, I am going to pack it all in and move to an island with no internet. THAT IS NOT HOW IT FUCKING WORKS!!!!!. You cannot simply remove things that don’t suite your narrative from the inflation data and magically fix the problem. Yes, housing inflation is running hot, including rents. Yes, part of that is due to the BOC rate increases over the last couple years, however some of it is also due to things like skyrocketing prices, skyrocketing property taxes, maintenance bills that climb monthly, etc. I would allow you to remove the housing inflation from the CPI when these bozos go and live in a tent in the park. It would be like removing food from the inflation data. If you need it to live, then it needs to be in the CPI number. Can the average Canadian live without a house or rental accommodations? And since I am on a rant here, let me add in that the same people that spew this bullshit were noticeably silent for the 2009 to 2021 period when low BOC overnight rates were holding inflation back, and subsequently keeping rates lower than they should have been. Where were all those geniuses then? Why did they not rave on about removing housing inflation from the CPI and raising rates? We all know why – because it didn’t suit their narrative then. We cannot, and should not remove components of the CPI simply to satisfy a lobby group or industry. Yes, we can note it, but housing inflation is real, rent inflation is real, and behind that number is a lot of people suffering from these high increases. To remove the housing number from CPI is a slap in the face to all the real people on the ground battling day in and day out with high housing cost inflation.

Housing will tick higher. I love this one. Yes, in the past cycle, lowering interest rates allowed real estate to rip. Not this time. The reason interest rates are coming down is because the Canadian economy is circling the drain, and the BOC and Uncle Tiff are taking a last ditch effort to try and save it by lowering borrowing costs. That is a tough pitch to say house prices rise under that scenario. Unemployment is creeping up, while at the same time Canada is adding a million people a year. GDP per capita is the worst in the developed world right now – no matter what spin politicians give it. GDP per person in Canada is lower than 2015 for god sakes. We have literally experienced a lost decade in Canada. Sure, we traded a lot of houses back and forth to each other for the last 10 years, but we didn’t develop any ground breaking tech, we didn’t bolster and solidify sectors of the economy for future growth, and we certainly didn’t get competitive on the global stage. This is where everyone chimes in and tells me about all the social good Canada did over the last decade. Well, this is finance, and finance is a blood sport. Finance doesn’t care about a pronoun, finance doesn’t care about the environment, and finance doesn’t care if we have tampons in the men’s washroom. As the economy slips further and further down the drain, the only chance to try and stop the decent – or at least slow it down is the BOC with interest rate cuts. No matter how well they succeed, the housing market sure and hell ain’t bouncing higher from here – at least for a while. Sure there will be fits and starts – a period of lower highs and lower lows, and it will be geographic. Yes, there will be a postal code in Alberta that will be up year over year by 3%. Perhaps the maritime Provinces will be flat, or again, there will be a little pocket that actually manages – on low volume, to show a slight year over year increase. However, for the other 98% of the country, lower is your friend. I challenge you to call bullshit on these people that say real estate is headed higher, and ask them for the logic. Ask them for the numbers, and math and calculations that went into it. How exactly do they see higher prices with a declining GDP per capita, rising unemployment, and inflation that is still kinda sticky?

I would love to type more, but I am sure my Tik Tok feed is already full of dancing realtors, and every mortgage broker in the country updating their Facebook and Insta feed with the new payments for the rate drop. I can’t wait to scroll social and see 487 posts about how the drop effects my payment per 100K of mortgage. Of course, the same people making a big deal about a 25 bp drop are the same ones that said it wasn’t a big deal when rates were going up 25 bps. Funny how the narrative can affect your business model, isn’t it?

Well, time to go for a hair cut.